Is Walgreens Giving Shareholders a 'Well Experience'?

Walgreens' good results in Europe masked problems with its Well Experience makeover. Can services drive drug profits?

NEW YORK (TheStreet) -- Walgreen (WAG) stock rose Tuesday, but not because its strategy is working.

CEO Greg Wasson, who took over in 2009, has been pushing a new long-term vision for company's chain of Walgreens drugstores, one based more on services than on product sales.

The strategy is called "Well Experience," it's managed by vice president Bryan Pugh, and it aims to make Walgreens stores "a new health and daily living destination" rather than just convenience stores with prescription counters.

Pugh previously worked at Tesco, the British grocer, where he launched a U.S. chain called "Fresh & Easy," which that company has since abandoned.

So far, only about 600 of the 8,200 Walgreens stores have been remodeled based on Pugh's proposals. An ultimate version of Well Experience can be seen at the company's store in the Chicago Loop: A 27,000 square foot, two-story Walgreens with a manicurist and sushi bar opened in 2012.

The idea is that services, including the Walgreens Healthcare Clinics, formerly called Take Care clinics, can provide primary care through nurses, and that other wellness services can be layered on top of the model so that people spend more time in the stores.

The promise of Well Experience has helped Walgreen shareholders to fat gains since Wasson became CEO. While rival CVS (CVS) has seen its stock gain more than 300% over the past 10 years, Walgreen shares have risen only about 100%. But Walgreen has jumped ahead in the last year, gaining nearly 40% vs. 36% for CVS. Walgreen shares were recently changing hands at about $65.71.

CVS has doubled down on drugs since buying its pharmacy benefit management business, Caremark, in 2007, and it recently announced it will stop selling tobacco products later this year. Walgreen has yet to follow suit.

On Tuesday Walgreen announced net income of $754 million, 78 cents a share, which was down from $756 million, or 79 cents a share, a year earlier.

Results would have been worse save for Alliance Boots, a European chain in which Walgreen took a 45% stake in 2012 with an option to buy the rest next year. Walgreen raised its estimate of "synergies" from that alliance by $25 million.